Workshop 2 - Consideration, Variation and ICLR

What three elements must be present for a binding contract?

1. Offer and acceptance

2. Intention to create legal relations

3. Consideration

What is Frederick Pollok’s (academic) definition of consideration?

'an act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.'

Who has the definition by Pollok been adopted by?

This definition has been adopted by the House of Lords in Dunlop v Selfridge [1915] AC 847.

At the heart of Pollock’s definition of consideration is the concept of exchange – in order to be able to enforce a promise made to you, you must be able to show that you agreed to provide something in return for that promise. The ‘something in return’ is known as consideration.

What is executory consideration?

Executory consideration is where contracting parties make promises to each other to perform something in the future after the contract has been formed.

The classic example is a contract for the sale of goods where the seller promises to deliver the goods at some time in the future, and the buyer promises to pay for them either on delivery or by some other credit arrangement. At the time of the agreement, neither side has done anything towards the performance of the promises made but the agreement still has contractual force, and a party who fails to carry out their promise can be sued. The formation of a bilateral contract usually involves executory consideration.

What is executed consideration?

Executed consideration is where, at the time of the formation of the contract, the consideration has already been performed.

The classic example of executed consideration in the context of contract formation is a unilateral contract where the promise of a reward is made and the 'price paid' in exchange for that promise is performance of the act stipulated in the offer: Carlill v Carbolic Smoke Ball Co Ltd [1893] 1 QB 256. The performance of the required act is both the acceptance of the offer (and thus the time when the contract is formed) and the executed consideration.

So it flows from the above that valuable consideration may be something promised or something done.

What are the 4 important rules in relation to consideration?

Consideration must not be pastConsideration must move from the promise

• Consideration need not be adequate

• Consideration must be sufficient

What does ‘Consideration must not be past’ mean?

It is not generally possible to use as consideration some act or forbearance which has taken place prior to the promise to pay. Consideration must be given in exchange for the promise of the other party. If the act / forbearance has taken place prior to the promise, then it cannot be in exchange for that promise.

In Eastwood v Kenyon (1840) a father died leaving his daughter, Sarah, in the care of a guardian, Eastwood. Eastwood borrowed £140 to help pay for Sarah's upbringing. When she came of age, Sarah married Kenyon, who then promised Eastwood that he would pay off the debt to repay Eastwood for having brought up Sarah. However, Kenyon failed to honour his promise. It was held that the consideration provided by Eastwood (by bringing up Sarah) was not good consideration to support Kenyon's subsequent promise to discharge the debt because it was in the past. It was held that the moral obligation to fulfil such a promise was insufficient to create a legally binding contract.

What is an exception to the ‘past consideration’ rule?

An exception to the past consideration rule exists where some prior act or service was provided by the promisee at the promisor's request and it was always understood that payment would be made for that act or service.

The leading case on the exception was heard by the Privy Council in Pao On v Lau Yiu Long [1980]. Lord Scarman outlined the necessary three conditions for the exception to apply:

a) The act must have been done at the promisor's request.

b) The parties must have understood that the act was to be rewarded either by a payment or the conferment of some other benefit. These could be because it was expressly agreed that there would be a reward / benefit, or because such an understanding can be implied - latter more likely in a commercial context.

c) The payment, or conferment of other benefits, must have been legally enforceable had it been promised in advance.

This case is conventionally cited as creating an exception to the rule of past consideration but the exception may be more apparent than real. The three conditions together indicate that, at some point in the request, an act was done at person A's request and with an understanding of reward / benefit for doing that. Perhaps at that stage (when the consideration is not yet 'past') a simple contract is formed, and all that happens later is that the precise value to be paid is fixed.

This can be utilised in relation to many everyday transactions, eg taking a car to a garage for repairs and leaving the ultimate price to be decided after completion of the repairs or seeking advice from a professional person and being presented with a bill on completion of the service in question. Both these scenarios are consistent with accepted commercial practice and no reasonable person could realistically believe that payment could not be enforced because the service had been rendered prior to any explicit promise to pay for or to demand remuneration. To recognise such arrangements as contractually binding is simply to reflect the reasonable expectations of the parties.

What does ‘Consideration must move from the promisee mean?’

The rule that consideration must move from the promisee effectively means that a party who has not provided consideration may not bring an action to enforce a contract. This rule is related to, but must be distinguished from, the doctrine of privity of contract which states that only a person who is party to a contract may sue or be sued on that contract.

Tweddle v Atkinson (1861) illustrates the rule that consideration must move from the promisee. The two fathers of a couple who were about to get married reach an agreement that the father of the bride was to pay £200 and the father of the groom £100, to the bridegroom, William Tweddle, the claimant. The groom sought to enforce his father-in-law's promise, but it was held that he could not as he had provided no consideration for the promise – the consideration had been provided by the fathers.

What does ‘Consideration need not be adequate’ mean?

According to the doctrine of freedom of contract, the courts will not interfere with a bargain freely reached by the parties. It is not the court's duty to assess the relative value of each party's contribution to the bargain. There is no reason, for example, why a party should not be bound by a promise to sell a new Rolls Royce car for one penny. If the agreement is freely reached, the inadequacy of the price is immaterial.

In Chappell & Co v Nestle Co Ltd [1960] .Nestle company offered gramophone records of a particular tune to the public for 1s 6d, together with three chocolate bar wrappers. The wrappers were thrown away on receipt by the company. In relation to a claim for royalties, the question arose as to whether the wrappers were part of the consideration given for each record. The House of Lords held that the wrappers were part of the consideration even though they were of no further value once received by the company.

Lord Somervell stated:

"(the chocolate wrappers) are, in my view, in law part of the consideration. It is said that when received the wrappers are of no value to Nestle. This I would have thought irrelevant. A contracting party can stipulate for what consideration he chooses. A peppercorn does not cease to be good consideration if it is established that the promisee does not like pepper and will throw away the corn. As the whole object of selling the record was to increase the sales of chocolate it seems to me wrong not to treat the stipulated evidence of such sales as part of the consideration"

What does ‘Consideration must be sufficient’ mean?

Consideration must have some value 'in the eyes of the law'. It matters not how small that value is, so long as it is worth something. If a thing of value can be identified, then there will be sufficiency of consideration and, as seen above, the court will not enquire as to its adequacy.

In the case of Thomas v Thomas (1842) the executor of an estate agreed to transfer a house to the deceased's widow in return for a payment from the widow of £1 per annum towards the ground rent for the property and the widow's agreement to keep the house in repair. The court made clear that it did not matter not whether the widow's obligations in any way matched the value of the property.

What does variation of contract mean?

Circumstances may change during the life of a contract, for example the cost of the raw materials may alter, or the scope of the work required may change. To respond to such changes, the parties may wish to vary their contract. For a variation of contract to be binding the same essential components needed to form a valid contract are required, ie agreement, consideration and ICLR.

What will the next element focus on?

When will an existing obligation be good consideration?

Executory consideration amounts to a party taking on an obligation - promising to do (or not do) something. Before entering into a contract, or varying an existing contract, a party might already be under an obligation to do the same thing, perhaps due to:

(a) An existing contractual obligation between the same parties;

(b) A public duty; or

(c) An existing contract with a third party (ie not one of the parties entering into the contract –the existing obligation is clearly owed to third party).

If a party offers as consideration something they are already obliged to do (a pre-existing obligation), will this be deemed good consideration?

We will look at the three possibilities stated above

Why is performing an obligation already owed under an existing contract not good consideration for a new promise?

Because if a party is already contractually bound to perform a particular obligation, then promising to do the same thing again in exchange for additional payment does not provide new consideration.

There is no new value moving to the other party — they receive nothing beyond what they were already entitled to under the existing contract.

Therefore, a variation requiring extra payment is not binding due to lack of consideration.

What do Stilk v Myrick (1809) and Hartley v Ponsonby (1857) show about when performance of existing obligations amounts to good consideration?

Stilk v Myrick (1809)
The captain promised extra wages if the crew covered the work of two deserting sailors.
Held: No binding promise — the sailors gave no consideration because they were already contractually obliged to do whatever was necessary to complete the voyage.

Key principle:
➡ Performing an existing contractual duty owed to the same party is not good consideration.

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Hartley v Ponsonby (1857)
So many crew deserted that the voyage became dangerous and radically different. The remaining sailors agreed to continue under far more hazardous conditions.
Held: Good consideration — the sailors went beyond their existing obligations, so the captain’s promise of extra payment was enforceable.

Key principle:
➡ If a party exceeds their original obligations, that extra effort can be valid consideration.

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Why different outcomes?

• In Hartley, the level of desertion made the job fundamentally different and more dangerous.

• In Stilk, the sailors did nothing beyond what they were already bound to do.

• Stilk also reflects concern about economic pressure on the captain, though modern courts might analyse such situations as economic duress instead of lack of consideration.

The courts revisited the issue of promises to pay more in the following case.

How did Williams v Roffey Bros [1991] change the approach to consideration when a party promises to pay more for the same performance?

In Williams v Roffey Bros, the court held that even when a party merely performs an existing contractual obligation, this can still amount to good (factual) consideration if the promisor receives a practical benefit.

Facts (brief)

• Roffey Bros subcontracted carpentry work to Williams for £20,000.

• Williams ran into financial difficulty and risked breaching the completion deadline.

• Roffey Bros faced penalties under their main contract if the work wasn’t finished on time.

• They promised Williams an extra £575 per completed flat.

• They later refused to pay; Williams sued.

Decision

The court found good consideration because Roffey Bros received practical benefits, including:

• Avoiding penalty payments,

• Maintaining efficient workflow,

• Avoiding the cost/hassle of hiring a replacement contractor.

The court labelled this “factual consideration”, recognising that although Williams promised nothing new, Roffey still gained something of real value.

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✅ Glidewell LJ’s Six Conditions for Factual Consideration

A promise to pay more will be enforceable where:

1. A contracts with B to perform work/services.

2. Before performance is complete, B doubts whether A can finish.

3. B promises A extra payment to secure timely completion.

4. B thereby obtains a practical benefit or avoids a detriment.

5. B’s promise is not made under economic duress or fraud.

6. That practical benefit is capable of amounting to consideration, making the promise binding.

How do Stilk v Myrick, Hartley v Ponsonby and Williams v Roffey differ in terms of what counts as consideration for a promise of extra payment?

1. What did the performing party do in return for the extra payment?

• Stilk v Myrick
  The sailors did nothing beyond their existing contractual duty.
  ➜ No additional performance. No consideration.

• Hartley v Ponsonby
  The sailors exceeded their contractual obligations by continuing the voyage in dangerous, radically changed conditions.
  ➜ Fresh legal consideration.

• Williams v Roffey
  Williams did not exceed his contractual obligations; he simply completed the carpentry work already agreed.
  ➜ But Roffey received a practical benefit (avoiding late‑completion penalties, smoother workflow, avoiding replacement contractor).
  ➜ Factual consideration.

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2. What type of consideration was provided?

• Stilk v Myrick:
  No consideration → promise unenforceable.

• Hartley v Ponsonby:
  Fresh legal consideration → promise enforceable.

• Williams v Roffey:
  No legal consideration (no extra work), but practical benefit = factual consideration → promise enforceable.

When does performance of a public duty amount to good consideration?

General rule:
Simply carrying out a public duty imposed by law is not sufficient consideration for a new promise. A person must do something beyond what the law already obliges them to do.

Key case: England v Davidson (1840)

• A reward was offered for information leading to the conviction of a criminal.

• A police officer provided the information.

• Argument: the officer was only performing his public duty.

• Held: The officer’s public duty is to prevent crime, but he is not obliged to provide information to private individuals.

• Therefore, by giving information to the defendant, he went beyond his public duty and did provide consideration.

Principle:
➡ A public officer can provide good consideration if they do more than the duty imposed on them by law.

Can performance of an existing contractual obligation owed to a third party amount to valid consideration for a new promise? Explain using The Eurymedon (New Zealand Shipping v AM Satterthwaite).

Yes — performing a pre‑existing duty owed to a third party can be good consideration.

If Party A is already contractually obliged to do X for Party B, the same performance (doing X) can still be valid consideration for a new promise made by Party C.

This contrasts with:

• Existing obligations to the same party → usually NOT good consideration

• Public duties → usually NOT good consideration

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Key Case: New Zealand Shipping Co v AM Satterthwaite (The Eurymedon) [1975] AC 154

In this case, the defendant stevedores were already bound by a contract with a third party to unload the claimant’s goods.
The claimant offered them protection from liability if they unloaded the goods.

Held:

• Performing an obligation already owed to someone else can be good consideration for a new contract.

• As Lord Wilberforce explained:

  “An agreement to do an act which the promisor is under an existing obligation to a third party to do may quite well amount to valid consideration… the promisee obtains the benefit of a direct obligation he can enforce.”

Reasoning:

• Party A exposes itself to double liability: if it fails to perform, both Party B (original contract) and Party C (new contract) can sue.

• This added legal exposure provides real value to Party C.

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Diagram (conceptual)

• Party A → Party B: Contract — A promises to do X

• Party A → Party C (dashed line): Promise to do X — Can this be consideration?
  ➡ Yes, because the obligation was owed to B, not C, so performing it benefits C in a new, enforceable way.

Why is part‑payment of a debt not good consideration, and what does Foakes v Beer (1884) establish?

General Rule: Part‑payment is NOT good consideration

If a debtor offers to pay a lesser sum in exchange for release from the full debt, they provide no new consideration — they are only doing what they were already legally obliged to do.
➡ Simply paying part of what is owed cannot discharge the whole debt.

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Key Case: Foakes v Beer (1884)

• Mrs Beer had a judgment debt of £2,090 against Dr Foakes.

• They agreed he would pay £500 immediately, and the rest in instalments, and that Mrs Beer would take no action to enforce the judgment.

• The agreement did not mention interest (which automatically accrued under the Judgments Act 1838).

• After Dr Foakes paid the full principal sum, Mrs Beer demanded the accrued interest.

• Dr Foakes argued the agreement released him from all liability.

• Mrs Beer argued the agreement was unsupported by consideration.

Held (House of Lords):
➡ Mrs Beer was entitled to the interest.
➡ Dr Foakes had provided no consideration by merely paying part of an existing debt at times convenient to him.

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Principle from Foakes v Beer

✔ Part‑payment of a debt cannot satisfy the whole debt unless supported by fresh consideration.
✔ The creditor’s promise to forgo part of the debt is unenforceable without new value being provided.

When does the rule in Foakes v Beer NOT apply, and why can practical benefit not be used to enforce a promise to accept part‑payment of a debt?

1⃣ Introducing a new element into the payment (Pinnel’s Case)

Foakes v Beer only applies when the creditor’s promise to accept less is unsupported by new consideration.
But if the debtor provides something extra or different at the creditor’s request, this is fresh consideration.

Examples of valid new elements (from Pinnel’s Case (1602)):

• Paying at a different place

• Paying at an earlier time

• Paying in a different form (e.g., goods instead of money)

➡ Any change requested by the creditor counts as good consideration, even if trivial.

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2⃣ Part‑payment by a third party

If a third party pays the creditor a lesser sum in full settlement, the creditor cannot sue the original debtor for the balance.

➡ A creditor who agrees with a third party to accept less is bound by that agreement.

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3⃣ Why practical benefit does NOT apply (Re Selectmove)

You might think Williams v Roffey should apply — after all, Mrs Beer benefitted from avoiding the risk of Dr Foakes’ bankruptcy.
But in Re Selectmove [1995], the Court of Appeal held:

• Practical benefit cannot convert part‑payment of a debt into good consideration.

• Williams v Roffey applies only to promises to pay more, not promises to accept less.

➡ Clear dividing line:

• Pay more → practical benefit may be consideration

• Accept less → practical benefit is irrelevant

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4⃣ Later development: MWB v Rock Advertising (CA)

The Court of Appeal in MWB v Rock Advertising [2016] took a more flexible approach, suggesting practical benefit might apply in part‑payment cases — but the Supreme Court avoided deciding the point.

➡ The law remains: Foakes v Beer still governs, but the boundaries are debated.

What did MWB v Rock Advertising [2016] decide about consideration in part‑payment cases, and why did the Supreme Court leave the issue unresolved?

Court of Appeal (2016) – Practical Benefit Applied

In MWB v Rock Advertising, the landlord orally agreed to reschedule rent payments (a variation of the licence).
Although part‑payment of a debt is normally not good consideration, the Court of Appeal held there was sufficient consideration because:

• The landlord obtained a practical benefit in keeping the tenant in occupation (better than having an empty property).

• This benefit went beyond simply receiving part of the arrears and a promise of future payments.

• There was no economic duress, echoing the approach from Williams v Roffey (practical benefit + absence of duress).

➡ This appeared to blur the line between promises to pay more (where practical benefit works) and promises to accept less (traditionally governed by Foakes v Beer).

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Supreme Court Appeal – Issue Not Decided

The Supreme Court allowed the appeal, but only because the oral variation was invalid for unrelated reasons (a “no oral modification” clause).
This meant the Court did not rule on whether practical benefit could make a promise to accept less enforceable.

• Lord Sumption said Foakes v Beer is “ripe for re‑examination”, but:

  Any overruling should be by an enlarged panel and in a case where the point is more than obiter.

➡ Therefore, the question of whether practical benefit can apply to part‑payment of debt remains unresolved.

What is promissory estoppel, and why is it important when considering part‑payment of a debt?

Promissory estoppel is an equitable doctrine that can make a promise binding even without consideration, where:

• One party makes a clear promise,

• The other relies on it, and

• It would be inequitable for the promisor to go back on it.

It protects a party who has relied on a non‑bargain promise.

Although commonly raised in cases where a creditor promises to accept part payment of a debt, promissory estoppel is not limited to such situations.
However, it is separate from the rules on consideration and is not covered in this element — but once studied, it must be applied when analysing scenarios involving promises to accept less.

➡ Key point:
Promissory estoppel can sometimes prevent a creditor from insisting on full payment, even though part‑payment alone is not good consideration under Foakes v Beer.

Why was promissory estoppel developed, and how did Hughes v Metropolitan Railway and High Trees contribute to the modern doctrine?

Why promissory estoppel matters

The rule in Foakes v Beer says that part‑payment of a debt is not good consideration, so a creditor’s promise to accept less is normally not binding.
This can operate harshly where a debtor relies on such a promise.

Promissory estoppel developed to soften this harshness.
It is an equitable doctrine that can make a promise binding even without consideration, where:

• A clear promise is made,

• The promisee relies on it, and

• It would be inequitable for the promisor to go back on it.

It protects a party who has relied on a non‑bargain promise, especially in part‑payment cases, though it is not limited to them.

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Key foundations Hughes v Metropolitan Railway (1877)

• Landlord gave tenant six months to carry out repairs.

• During negotiations for the tenant to purchase the lease, the tenant paused repairs.

• When negotiations failed, the landlord tried to enforce forfeiture for non‑repair.

• Held: The landlord’s conduct amounted to an implied promise not to enforce his strict rights while negotiations continued.

• The tenant had relied on that promise, so the landlord was estopped from enforcing forfeiture.
  ➡ This case provided the seed of promissory estoppel.

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High Trees (Central London Property Trust v High Trees House, 1947)

• Denning J expanded the principle from Hughes.

• Recognised that where a party makes a clear promise, intending it to affect legal relations, and the other party relies on it, the promisor may be estopped from going back on it.

• This became the basis of the modern doctrine of promissory estoppel.

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Overall principle:

➡ Promissory estoppel allows enforcement of a promise without consideration where reliance makes it inequitable to withdraw it.

What happened in Central London Property Trust v High Trees House [1947], and how did the case develop the doctrine of promissory estoppel?

• In 1937, the landlord let a block of flats to the tenant on a 99‑year lease at £2,500 per year.

• When WWII began, only one‑third of the flats were let, so in 1940 the landlord agreed in writing to reduce the rent to £1,250 while the difficulties continued.

• By 1945, the flats were fully let, but the tenant kept paying the reduced rent.

• The landlord sued for arrears for the last two quarters of 1945 and full rent going forward.

Decision

• Denning J held the landlord could recover full rent from the point the flats were fully let (1945 onward).

• Obiter: Denning said that if the landlord had tried to claim the arrears from 1940–1945, the claim would have failed because the landlord had made a promise to accept reduced rent, and the tenant had relied on that promise.

Principle — Promissory Estoppel

Denning J stated that:

If a promise is intended to affect legal relations, is known to be relied upon, and is actually relied upon, the promisor may be estopped from going back on it.

Thus, even without consideration, the promise would be binding for the period during which reliance occurred.

Significance

• This case transformed the earlier principle from Hughes v Metropolitan Railway into the modern doctrine of promissory estoppel.

• Denning’s obiter comments showed that a promise may be enforceable without consideration if reliance and inequity are present.

• However, later courts have strictly limited the doctrine, restricting its impact on the traditional rules of consideration.

Why is promissory estoppel described as a “shield and not a sword”, and how does Combe v Combe [1951] illustrate this principle?

Promissory estoppel = a shield, not a sword

Promissory estoppel can only be used as a defence to prevent a party from enforcing their strict legal rights.
It cannot be used as a cause of action to sue someone on a promise.

➡ You cannot enforce a promise using promissory estoppel unless you gave consideration — promissory estoppel cannot create a claim where none existed.

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Key Case: Combe v Combe [1951]

• After a divorce, Mr Combe promised to pay Mrs Combe £100 per year.

• He never paid.

• Mrs Combe sued, trying to rely on promissory estoppel as her cause of action.

Held (Court of Appeal):

• She had provided no consideration, so the promise was not enforceable.

• Promissory estoppel could not be used to make the husband pay.

• It only prevents a promisor from insisting on their strict rights — it does not give the promisee a right to sue.

As stated in the case:
➡ Promissory estoppel is “a shield and not a sword.”

What kind of promise is required for promissory estoppel to apply?

For promissory estoppel to operate, there must be a clear and unequivocal promise or representation that the promisor will not fully enforce their strict legal rights.
This promise must be intended to affect legal relations, not merely grant a casual or gratuitous indulgence.

The promise can be:

• Express (stated in clear words), or

• Implied (e.g., inferred from conduct), as recognised in Woodhouse A.C. Israel Cocoa Ltd. S.A. v Nigerian Produce Marketing Co. Ltd [1972] AC 741.

➡ If the promise is not clear, unequivocal, and legally intended, promissory estoppel cannot arise.

What reliance is required for promissory estoppel to apply, and must the reliance be detrimental?

1⃣ A change of position in reliance on the promise is essential

Promissory estoppel requires that the promisee relied on the promise — meaning the promise must have influenced their conduct.
➡ This principle comes from High Trees.

• The reliance must occur after the promise.

• Any act done before the promise cannot be reliance.

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2⃣ Can part‑payment itself count as reliance?

There is debate, but it may count if the promise influenced the debtor to make the reduced payment rather than acting under the original contractual obligation.

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3⃣ Is detrimental reliance required?

Not strictly.
Although reliance often results in detriment, Denning J in High Trees made clear that detriment is not necessary.

➡ What is necessary is a change of position that makes it inequitable for the promisor to go back on their promise.

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Principle summary:

Promissory estoppel requires:
✔ A change of position in reliance on the promise
✘ Not necessarily detriment — only inequity if the promise were withdrawn

When will it be inequitable to allow a promisor to go back on their promise, and how do The Post Chaser and D & C Builders v Rees illustrate this requirement in promissory estoppel?

Inequity requirement

Promissory estoppel is an equitable, discretionary doctrine.
The court must be satisfied that it would be inequitable (unfair) to allow the promisor to resile from their promise.

To decide this, courts balance the conduct of both parties.

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Reliance need not be detrimental

Although reliance often involves detriment, it is not essential.
From High Trees, Denning made clear that it is enough that the promisee has changed their position in reliance on the promise, and that it would be unfair to let the promisor go back on it.

The Post Chaser [1981] shows this clearly:

• Detrimental reliance is not required;

• What matters is whether it would be inequitable in all the circumstances to allow the promisor to withdraw the promise.

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Conduct matters: D & C Builders v Rees (1966)

• Builders were owed £482.

• The debtor knew they were in financial difficulty and pressured them into accepting £300 as “full and final settlement.”

• Builders later sued for the balance.

• The debtor tried to rely on promissory estoppel.

Held:

• Promissory estoppel was not available because the promise to accept less was obtained through intimidation and unfair pressure.

• Equity requires clean hands: “those who seek equity must do equity.”

• Since the debtor acted inequitably, they could not rely on estoppel.

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Principle:

➡ Promissory estoppel applies only if it would be inequitable to let the promisor enforce their strict rights.
➡ If the promisee acted unfairly or in bad faith, estoppel will not apply.

Does promissory estoppel suspend or extinguish legal rights, and how do High Trees and Tool Metal v Tungsten illustrate this?

General rule: Promissory estoppel is normally suspensory

Promissory estoppel usually suspends the promisor’s strict legal rights, meaning:

• The promisor cannot enforce those rights for the period during which the promise operates,

• But the rights may resume later.

There are two ways rights may resume:

1. When the circumstances giving rise to the estoppel come to an end

   • As suggested in High Trees, once the flats were fully let, the landlord could resume charging full rent.

2. When reasonable notice is given

   • Tool Metal v Tungsten [1955] confirms that a promisor can reinstate their strict legal rights after giving reasonable notice of their intention to resume enforcement.

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Can rights ever be extinguished?

Yes — exceptionally.

While the default position is suspension, courts may hold that a right has been extinguished where:

• It would be unjust or inequitable to revive the right, or

• It is impossible for the promisee to fulfil the original obligation.

Example:

• In High Trees, Denning J stated (obiter) that if the landlord had attempted to recover full rent for the war years (1940–1945), they would have been estopped entirely — meaning those rights would be extinguished, not merely suspended.

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Principle summary

• Normally: Promissory estoppel suspends legal rights.

• Sometimes: Rights can be extinguished where fairness and reliance make it inequitable to revive them.

What is the ‘intention to create legal relations’?

The intention to create legal relations is an essential element in the formation of a contract. Where no intention to be bound can be attributed to the parties, there is no contract. By intention to create legal relations, we mean an intention to enter into an agreement with legal ramifications – a contract.

‘An intention to enter into an agreement that has legal ramifications. One of the necessary requirements for a binding contract.’

What is the objective test for intention to create legal relations, and how do courts distinguish between commercial and domestic agreements?

The objective test asks whether a reasonable person, considering the parties’ words, actions, and circumstances, would view the agreement as intended to be legally binding. As explained in Merritt v Merritt (1970), courts do not look into the parties’ actual minds but assess the situation externally.

Courts apply two key presumptions:

• Commercial agreements: Presumed to have an intention to create legal relations, unless the presumption is rebutted.

• Social/domestic agreements: Presumed not to have such intention, unless the presumption is rebutted.

The court’s overall aim is to give effect to the parties’ intentions, whether expressed or inferred.

What is the presumption regarding intention to create legal relations in commercial agreements, and how can it be rebutted?

Commercial agreements carry a strong presumption that the parties intend to create legal relations. This applies not only to agreements between businesses but also to transactions between individuals and businesses, and even between individuals (e.g., buying a car via an online advert).

A party claiming that no legal intention existed must rebut the presumption, and the burden is heavy. The parties may include wording stating that the agreement is not intended to be legally binding, but the courts require clear, unambiguous language. Vague or ambiguous terms will not displace the presumption.

How do courts approach intention to create legal relations in the context of advertisements, and what do Carlill v Carbolic Smoke Ball Co and Esso Petroleum v Customs and Excise illustrate?

Advertisements can blur the line between intention to create legal relations and offer and acceptance, since the two often overlap.

• Carlill v Carbolic Smoke Ball Co (1893):
  The company claimed the advert was mere sales puff. The court disagreed, holding that the statement about depositing £1,000 in a bank showed a clear intention to be bound, and that a reasonable person would treat the advert as a unilateral offer, not an invitation to treat.

• Esso Petroleum v Customs and Excise (1976):
  Esso offered “World Cup coins” with petrol purchases. The House of Lords split on whether there was an intention to create legal relations.

• Majority: Found intention, relying on the commercial context and Esso’s expected promotional benefit.

• Minority: Found no intention, pointing to the trivial value of the coins, the language used, and the unlikelihood that motorists would expect a legal remedy if denied a coin.

These cases show that intention in advertising depends on how a reasonable person would interpret the promise in its commercial context.

How does statute affect intention to create legal relations, particularly under s179 of the Trade Union and Labour Relations (Consolidation) Act 1992?

Some statutes expressly control when intention to create legal relations can be inferred. Under s179 TULRCA 1992, collective agreements between trade unions and employers are presumed not to be legally binding unless:

• the agreement is in writing, and

• it expressly states that the parties intend it to be legally enforceable.

If both conditions are met, the agreement is presumed to have the necessary legal enforceability.

What is the effect of the phrase “subject to contract” on intention to create legal relations?

The phrase “subject to contract” creates a strong inference that the parties do not intend to be legally bound until a formal written contract is executed. An agreement expressed as “subject to contract” is prima facie not binding.

It is commonly used in land sale negotiations to allow parties time to reflect or obtain legal advice before committing. Courts have consistently recognised and upheld this wording as signalling a lack of immediate legal intention.

What is the presumption regarding intention to create legal relations in social and domestic agreements, and how do the key cases (Balfour v Balfour, Merritt v Merritt, Jones v Padavatton) illustrate how the presumption operates and can be rebutted?

SSocial, family, and domestic agreements carry a presumption of no intention to create legal relations, because a reasonable person would not expect everyday family or social arrangements to give rise to legal consequences.

Key Cases (Detailed):

1. Balfour v Balfour [1919] 2 KB 571

• Husband working abroad promised to pay his wife £30/month while she remained in England for health reasons.

• When the relationship later deteriorated, the wife sued to enforce the promise.

• Held: No intention to create legal relations.

  • The agreement was made within an amicable marriage, in a domestic context.

  • At the time of the promise, the parties did not contemplate litigation; it was a family arrangement, not a contract.

• Principle: Agreements between spouses living together in harmony are presumed not to be legally binding.

2. Merritt v Merritt [1970] 1 WLR 1211

• Married couple separated. Husband agreed in writing to transfer the house to his wife if she paid off the remaining mortgage.

• Husband later refused to transfer the property.

• Held: There was an intention to create legal relations.

  • The couple were separated, so the domestic presumption did not apply.

  • The agreement was written, specific, and made in a context where parties would reasonably expect legal consequences.

• Principle: When spouses are separated or in the process of separating, the presumption is rebutted because the relationship is no longer governed by mutual trust.

3. Jones v Padavatton [1969] 1 WLR 328

• Mother persuaded daughter to leave her job in the US and study for the Bar in England, promising financial support.

• Later varied: mother bought a house for the daughter to live in rent‑free, with rental income from other rooms to support her.

• After several years and no qualification, the relationship broke down; mother sought possession of the house.

• Held: No intention to create legal relations.

  • Despite the financial and life‑changing nature of the arrangement, the court viewed it as a family agreement, not a contract.

  • The terms were vague, long‑term, and lacked the formality expected of a binding agreement.

• Principle: Even substantial family arrangements may lack legal intention unless the circumstances clearly show otherwise.

Overall Rule:

• Presumption: No intention in social/domestic agreements.

• Rebuttal: Possible where:

• the relationship is strained or broken,

• the agreement is formal or written,

• the circumstances show the parties expected legal consequences.

What is contractual capacity, and who is protected by the rules governing capacity to contract?

A person must have capacity to enter into a contract; otherwise, the contract is unlikely to bind them. Capacity rules protect individuals who are vulnerable or less able to safeguard their own interests, such as:

• Children (minors)

• People with mental illness

• Individuals temporarily lacking mental capacity (e.g., due to intoxication)

These rules also protect those who contract with individuals of limited capacity.

Anyone over 18, who is of sound mind and not affected by a factor undermining capacity (such as drunkenness), has full contractual capacity.

Contractual capacity is examined through two main categories:

1. Children (minors)

2. Persons lacking mental capacity

What is the general rule on contractual capacity for minors, and what are the main exceptions?

A person under 18 is generally not bound by a contract, even if the other party is unaware of their age or the minor has misrepresented it.

There are two main exceptions where a minor can be bound:

• Contracts for necessaries — goods or services suitable to the minor’s condition in life and actual requirements.

• Contracts of employment, apprenticeship, or education — enforceable if they are for the minor’s benefit.

When is a minor bound by a contract for necessaries, and how does Nash v Inman illustrate the test?

A minor is bound by a contract only if it is for necessaries and is for the minor’s benefit. Even then, the minor is liable only to pay a reasonable price, not the contract price.

Necessaries include:

• Essential goods and services such as food, medicine, accommodation, clothing

• Items genuinely required for the minor’s actual use, provided they are not merely for comfort, luxury, or pleasure

• What counts as a necessary depends on the minor’s age, social status, and existing supply of similar items

Case: Nash v Inman (1908)

• A tailor supplied 11 fancy waistcoats to a minor who was a Cambridge undergraduate.

• Although the clothing was appropriate to his social position, evidence showed the minor already had sufficient clothing.

• Held: The goods were not necessaries, so the contract was not enforceable.

• Principle: Goods must be both suitable and actually needed at the time of supply.

When is a minor bound by a contract of employment, apprenticeship, or education, and how does Aylesbury FC v Watford FC illustrate the test?

A minor can be bound by a contract of employment, apprenticeship, education, or a similar training contract, but only if the contract is for the minor’s benefit. Courts assess benefit by looking at whether the terms genuinely promote the minor’s training, development, welfare, or future prospects.

Case: Aylesbury Football Club v Watford Association Football Club (2000)

• A young footballer signed a contract with Aylesbury FC.

• The club sought to enforce the agreement when the player moved to Watford FC.

• Held: The contract was not binding because it was not for the minor’s benefit.

  • The player received no additional training or developmental opportunities.

  • The terms were onerous and restrictive, limiting his ability to progress in his football career.

  • His wages were entirely at the discretion of the employer, giving the club disproportionate control.

• Principle: Employment‑type contracts with minors are enforceable only when they positively advance the minor’s skills, education, or prospects. If the terms are exploitative, restrictive, or one‑sided, the contract will not bind the minor.

What is the legal effect of entering into a contract with a minor, and how do the exceptions (necessaries, employment/apprenticeship/education, and ratification) operate?

As a general rule, a contract cannot be enforced against a minor, but the minor can enforce it against the other party. This protects minors from being bound by obligations they may not fully understand.

There are limited exceptions:

• Contracts for necessaries: Binding, but the minor is only liable to pay a reasonable price, not the contract price.

• Contracts of employment, apprenticeship, or education: Binding only if the contract is for the minor’s benefit.

• Exceptional categories: A small number of unusual contracts (e.g., certain contracts involving property or ongoing obligations) may bind a minor unless the minor repudiates them.

• Ratification: If the minor ratifies the contract at 18, it becomes fully binding.

Flow‑chart logic (in words):

1. Is the contract for necessaries?

   • Yes: Minor must pay a reasonable price → Binding

   • No: Move to next question

2. Is it a contract of employment, apprenticeship, or education?

   • No: Minor is not bound

   • Yes: Move to next question

3. Is the contract for the minor’s benefit?

• No: Minor is not bound

• Yes: Contract is binding

How do mental incapacity and intoxication affect contractual capacity, and what do ss 2–3 of the Mental Capacity Act 2005 require?

A person lacks capacity under s 2 Mental Capacity Act 2005 if, at the time of making the contract, they are unable to make a decision for themselves in relation to that specific matter. Capacity is decision‑specific, not an all‑or‑nothing status.
Example: A person with a brain injury may be able to choose where to live but lack capacity to manage a large financial investment.

Under s 3(1), a person is unable to make a decision if they cannot:

• Understand the relevant information

• Retain the relevant information

• Use or weigh the information as part of decision‑making

• Communicate their decision (by any means)

Under s 3(4), “relevant information” includes the reasonably foreseeable consequences of:

• (a) Deciding one way or another, or

• (b) Failing to make a decision

The Court of Protection (s 15) may issue declarations about a person’s capacity and their ability to enter into contracts.

Although the statutory definition applies formally only to the Act, in practice it aligns closely with the test used in contract law when determining whether a person had capacity to contract, including cases involving mental impairment or intoxication.

What is the effect of entering into a contract with a person lacking capacity, and how do the rules on necessaries, mental incapacity, and intoxication operate?

A person lacking capacity may still be bound in limited circumstances, but the law protects them from unfair contractual obligations.

1. Necessaries — s 7 Mental Capacity Act 2005

A person without capacity remains liable to pay a reasonable price for necessaries.
Necessaries are defined (s 7(2)) as goods or services:

• Suitable to the person’s condition in life, and

• Suitable to their actual requirements at the time of supply

This mirrors the rule for minors.

2. Other contracts — Imperial Loan Co v Stone [1892]

A contract made by a person lacking capacity is binding unless the person claiming incapacity can prove:

1. They did not understand what they were doing, and

2. The other party knew (or had reason to know) of their incapacity

If both elements are satisfied, the contract is voidable, not void.

Case detail:

• Stone, suffering from mental incapacity, signed a guarantee.

• The court held that incapacity alone is not enough; the other party must have been aware of it.

• This protects vulnerable individuals while ensuring commercial certainty.

3. Intoxication — Matthews v Baxter (1873); Aspinall’s Club Ltd v Hui (2023)

The same principles apply to intoxicated persons:

• They must pay a reasonable price for necessaries

• They are not bound by other contracts if:

• They were so intoxicated that they did not understand what they were doing, and

• The other party knew or ought to have known of their intoxication

This reasoning extends to intoxication by drugs or other substances, not just alcohol.

Case detail:

• Matthews v Baxter: A contract made while drunk was voidable because the intoxicated party lacked understanding and the other party knew.

• Aspinall’s Club v Hui: Reinforced that extreme intoxication can negate contractual intention where the other party is aware of the impairment.